August 2018

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Total shipments from the textile and garment industry of Vietnam totaled US $4.2 billion in the first half of the current year. This figure has been achieved in one of the most difficult times and conditions ever faced by the sector.

The two biggest factors which have affected the sector, according to experts is the increase in prices of raw materials and labour costs. Prices of key inputs like cotton rose by 20 percent, fibre 15 percent, nylon 20 percent, labour 20 percent and finally packaging material by 30 percent.

Before the recent drop in prices of crude oil, prices of petrochemicals had also shot up in the last six months. Companies are working on razor thin margins of 3-3.5 percent compared to 8-10 percent a year ago.

Companies are also finding it difficult to access working capital or for capital for expansion due to high interest rates and tight monetary policy. If all this was not enough, the companies also had to face the uncertainty of frequent and unpredictable electricity cuts which in turn led to production schedules going haywire.

Ever increasing prices of crude oil also led to a rise in prices of gasoline which in turn increased transportation costs, leading to increase in costs.

Despite a strong growth in Japan, Canada and especially the EU market, the markets of the US are key destination for the sector in recent years. Exports to the US constitute for 60 percent of all exports from the industry with EU and Japan making up for 18 and 9 percent respectively.

Regardless of all the difficulties faced by the industry, companies are very optimistic about the future. According to a recent survey conducted by Ho Chi Minh Association of Garment Textile Embroidery-Knitting, some of the companies though have admitted to a reduction in their turnover in the first six months.

However, 80 percent of those interviewed are supposed to have delivered good results and over 90 percent were very confident of further development of the industry in the next five years.

But for every dark cloud hovering over the textile industry, there are a few silver linings too. First and foremost is the announcement by the Department of Commerce of not finding evidence on anti-dumping allegations.

This led to the Vietnamese requesting the US to remove all products from the list of disapproved items manufactured by the Vietnamese textile and garment industry.

There have been more and more new companies sourcing their products from the domestic industry due to the problems faced by their Chinese counterparts. Reasons for the same are also attributed to the devaluation of the local currency to the US dollar and other foreign currencies and the stable development of the industry has also helped attract more companies to source from domestic suppliers in Vietnam.

Experts, though have a word of caution for the industry at large. They say that none of the present positive factors are permanent and the industry needs to constantly innovate and expand to new markets to maintain the growth.

Along with the above, they also advise companies to find a firm footing in the domestic markets which has been completely dominated and overrun by products from China, Thailand and Korea.